Does Audit Committee Reporting Need to Be Improved? Evidence from a Large-Scale Textual Analysis

56 Pages Posted: 16 Feb 2018 Last revised: 10 Feb 2019

See all articles by Michelle Draeger

Michelle Draeger

Colorado State University, Fort Collins - Department of Accounting

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting

Jaime J. Schmidt

University of Texas at Austin

Date Written: January 16, 2019

Abstract

The Securities and Exchange Commission (SEC) issued a Concept Release in 2015 which considers expanding audit committee reporting requirements to include greater disclosure of the audit committee’s oversight of the external auditor. To provide insight into whether additional reporting requirements are needed, we (1) perform a large-scale textual analysis of the content of over 7,000 U.S. companies’ audit committee report disclosures issued between 2006 and 2016 and (2) explore whether investors find such reports informative. We find that audit committees voluntarily increased disclosure of their financial reporting and auditor oversight activities following the SEC’s 2015 Concept Release. However, the economic significance of our findings is small, and the disclosure levels still fall short of post-Sarbanes-Oxley disclosure levels. In addition, we find that these additional voluntary disclosures are informative to investors. In particular, audit committee reports with greater disclosure are associated with lower misstatement risk and greater shareholder satisfaction of the audit committee when an internal control material weakness is announced, as measured by shareholder votes to ratify the audit committee members. Overall, our findings indicate that voluntary increases in audit committee disclosures have occurred, but there is still room for improvement.

Keywords: audit committee reports, voluntary disclosure, textual analysis, LIWC

JEL Classification: M41, M48

Suggested Citation

Draeger, Michelle and Lawson, Bradley and Schmidt, Jaime J., Does Audit Committee Reporting Need to Be Improved? Evidence from a Large-Scale Textual Analysis (January 16, 2019). Available at SSRN: https://ssrn.com/abstract=3118408 or http://dx.doi.org/10.2139/ssrn.3118408

Michelle Draeger

Colorado State University, Fort Collins - Department of Accounting ( email )

256 Rockwell Hall
Fort Collins, CO 80523
United States

Bradley Lawson

Oklahoma State University - Stillwater - School of Accounting ( email )

College of Business Administration
415 Business Building
Stillwater, OK 74078
United States

Jaime J. Schmidt (Contact Author)

University of Texas at Austin ( email )

Austin, TX 78712
United States

Register to save articles to
your library

Register

Paper statistics

Downloads
150
rank
190,204
Abstract Views
767
PlumX Metrics